STRATEGIC MANAGEMENT

A CONCEPT ON STRATEGIC THINKING AND MODUS OPERANDI FOR SURVIVAL IN 21st CENTURY Alokesh Banerjee

WHY STRATEGIC THINKING?

Companies are operating in age of discontinuing change - an age of creative & constructive

destruction.

Business, technology and product life is shrinking. Demographic shift in terms of consumer preference and requirements. A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth economy. A concept from liberalization, privatization & Globalization (LPG) to regionalization. Shift from controlled economy to market driven economy. Rich countries adopt deindustrialization. Emergence of new Global Socio economic system and world orders. Knowledge is replacing Infrastructure Self-leadership is in, command and control out Networks are replacing hierarchies Wanted - employees with Emotional Intelligence.

Current Trends

Increasing environmental awareness Growing health consciousness Expanding seniors market Impact of the Generation Y boom let Declining mass market Changing pace and location of life Changing household composition Increasing diversity of workforce & market

Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! In a recent year, 44,367 businesses filed for bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is taken to preserve competitive position 3

Challenge of Strategic Management

The goals of achieving strategic competitiveness and earning aboveaverage returns are challenging The performance of some companies more than meets strategic management's challenge
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21st Century Competitive Landscape

Fundamental nature of competition is changing
Rapid technological changes Rapid technology diffusions Dramatic changes in information and communication technologies Increasing importance of knowledge

The pace of change is relentless.... and increasing Traditional industry boundaries are blurring, such as...
Computers Telecommunications

21st Century Competitive Landscape

The global economy is changing
People, goods, services and ideas move freely across geographic boundaries

Traditional sources of competitive advantage no longer guarantee success New keys to success include:
Flexibility Innovation Speed Integration
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New opportunities emerge in multiple global markets

Markets and industries become more internationalized

21st Century Competitive Landscape

A countrys competitiveness is achieved through the accumulation of individual firms strategic competitiveness in the global economy Achieving improved competitiveness allows a country's citizens to have a higher standard of living Country Competitiveness Rankings
1999 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1998 1 3 2 6 5 8 10 4 7 11 15 14 13 12 9 17 16 30 23 20 18 19 22 27 24 25 Country Singapore United States Hong Kong Taiwan Canada Switzerland Luxembourg United Kingdom Netherlands Ireland Finland Australia New Zealand Japan Norway Malaysia Denmark Iceland Sweden Austria Chile Korea France Belgium Germany Spain Competitiveness Index 1999 2.12 1.58 1.41 1.38 1.33 1.27 1.25 1.17 1.13 1.11 1.11 1.04 10.1 1.00 0.92 0.86 0.85 0.59 0.58 0.37 0.57 0.46 0.44 0.39 0.37 0.16 Competitiveness Index 1998 2.16 1.41 1.91 1.19 1.27 1.10 1.05 1.29 1.13 1.05 0.70 0.79 0.84 0.97 1.09 0.59 0.61 -0.18 0.25 0.37 0.57 0.39 0.25 -0.03 0.15 7 0.02

Changing Corporations
Old Organizational Format
One large corporation Vertical communication Centralized top-down decision making Vertical integration

New Organizational Format

Mini-business units & cooperative relationships Horizontal communication Decentralized participative decision making Outsourcing & Virtual Organizations

Work/quality teams
Functional work teams Minimal training Specialized job design focused on individual Stability & Structured & Gradual Mass Production

Autonomous work teams

Cross-functional work teams Extensive training Value-chain team-focused job design Change & Flexibility & Speedy, Fast Mass Customization

* Business Week, 28 August, 2000

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FOUR MAJOR THRUST AREAS OF BUSINESS

Managing Competition - Aggressive Marketing Market Share Go Global - Superior Quality of Products / Services - Cost Reduction / Lowering Prices - Faster Deliveries / Response Time - Innovations / Productivity Improvements Developing Leadership Skills for Vision and Change. To focus on People besides Products, Process, Profits. Today, every person is a Profit Center. Using IT based tsunami of information, ideas and tools for managing the business E Business Making ours a Learning Organization
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WHAT IS BUSINESS?

PRODUCT

MARKET

FUNCTION

What Business the Firm is in? Why the Firm is in the Business? What should be Firms Business?
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Strategic Management

Why? To ensure Growth with Profits in the long-run!

Creating & Sustaining Competitive Advantages, Globally

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The Strategic Management System

Involves the full set of:

Commitments

Decisions

Actions

which are required for firms to achieve:

Strategic Competitiveness
Sustained Competitive Advantage Above-Average Returns
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Strategic Competitiveness
Achieved when a firm successfully formulates and implements a value-creating strategy

Sustained Competitive Advantage

Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to earn from other investments with similar risk
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BASIC CONCEPTS

STRATEGY: It is Unified, Comprehensive, and Integrated long term plan that relates to the strategic advantages of the firm to the challenges of the environment. STRATEGIC MANAGEMENT: It is a stream of decisions and actions which leads to the development of an effective strategy to help achieve the corporate objective. It is a continuous, iterative, & Cross functional process of matching firm with its environment. COMPETITIVE ADVANTAGE: is delivering superior value advantage to your target customers relative to your competitors. Or delivering equivalent customer value to your target customers relative to your competitors , but at a lower cost.
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GAP OUT PUT VISION VALUE SYSTEM

FIRM/BUSINESS
MISSION PURPOSE BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM
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OBJECTIVES

MISSION & GOALS OF A COMPANY

VISION: It is a vividly descriptive image of what you what to be or what you want to be known for. Vision is an art for seeing invisibles.
MISSION : It a statement of intent of what a firm wants
to create and through which line of Business. It is a process of legitimization of corporate existence of business. It defines the culture, philosophy and grand design of the firm. To pursue the Creation of Value to all Stakeholders in the Business. It is an answer to question What business are we in?

GOALS / OBJECTIVES : End to be achieved. It is

To make Profit for today and forever To satisfy Customers today and forever To satisfy Employees today and forever

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Strategic Planning

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Three Big Strategic Questions

Where Are We Now? Where Do we Want to Go? How Will We Get There?

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The Five Task of Strategic Planning

Developing a Vision and a Mission Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the Situation and Initiating Corrective Action

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An organizations MISSION

reflects managements vision of what the organization seeks to do and to become sets forth a meaningful direction for the organization indicates an intent to stake out a particular business position outline Who we are, What we do, and Where we are headed.
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Setting Objectives

The purpose is to convert the mission into Specific Performance Targets Serve as yardsticks for tacking company progress and performance.

Should be set at levels that require stretch and disciplined effort.

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Two Types of Objectives are Needed

FINANCIAL OBJECTIVES STRATEGIC OBJECTIVES

Short-Run Long-Run

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Crafting a Strategy

HOW to out compete rivals and win a competitive advantage. HOW to respond to changing industry and competitive conditions HOW to defend against threats to the companys well-being HOW to pursue attractive opportunities
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Crafting Strategy is an Exercise in Entrepreneurship

Risk-taking and venture someone's Innovation and business creativity A keen eye for spotting emerging market opportunities Choosing among alternatives
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Why Good Management of Strategy Matters

Powerful execution of a powerful strategy is a proven recipe for success. Crafting and implementing a strategy are CORE management functions. To qualify as WELL-MANAGED, a company should Have an attractive strategy A good strategy builds a position that is strong enough to overpower rivals and flexible enough to overcome unexpected obstacles.

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Why is a Companys Strategy Constantly Evolving?

Changing market conditions Moves of competitors New technologies and production capabilities Evolving buyer needs and preferences Political and regulatory factors New windows of opportunity Fresh ideas to improve the current strategy A crisis situation
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What is a Strategic Plan?

A strategic plan specifies where a company is headed and HOW management intends to achieve the targeted levels of performance.
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Strategic Management Basic model

Options on Competitive Positioning
Learning points from deviations

Four Basic Elements

Strategic management is the process of moving where you are to where you want to be in future through sustainable competitive advantages
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VISION

GAP

VALUE

MISSION

FIRM
GOAL
MACRO ENVIRO APPRAISAL

BASIC STRATEGIES

STRATEGIC IMPLEMEMTATION

STRATEGIC ALTERNATIVES

ORGANISATION DESIGN
FUNCTIONALLEVEL STRATEGIES & RESOURCES ALLOCATION

MICRO ENVIRO APPRAISAL OF INDUSTRIES

BUSINESS LEVEL STRATEGIES

MICRO ENVIRO APPRAISAL OF FIRM

DEVELOPMENT OF CONTROL

STRATEGIC SELECTION

Is Strategy Working?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS

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Characteristic of the Strategic Management Process

An ongoing exercise Boundaries among the tasks are blurry rather than clearcut Doing the 5 task is not isolated from other managerial responsibilities and activities. The time required to do the tasks of strategic management comes in lumps and spurts rather than being constant and regular. Involves pushing to get the best strategy supportive performance from each employee, perfecting the current strategy.
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ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ANALYSIS O
T
ETOP SAP OFPP

ENVIRONMENTAL DIAGNOSIS S W

EVALUATION PROCESS OF SWOT ANALYSIS

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Impact Of Environment Business

ENVIRONMENTAL FACTORS
GOVERNMENTAL ECONOMICAL

INTERNATIONAL

TECHNOLOGICAL FIRM/BUSINESS
SOCIETAL CULTURAL

POLITICAL

LEGAL

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Variables in Societal Environment

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International Societal Environments

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Industry Analysis

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Porters Approach to Industry Analysis

Threat

of Substitute Products or Services

Bargaining
Bargaining Relative

Power of Buyers
Power of Suppliers

Power of Other Stakeholders

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Porters Approach to Industry Analysis

Threat of New Entrants Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages Government policy

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Porters Approach to Industry Analysis

Rivalry Among Existing Firms

Number

of competitors Rate of industry growth Product or service characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals

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SWOT analysis of strengths, weaknesses, opportunities,and threats.

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TOWS Matrix

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CREATING STRATEGIC MIND SET

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Corporate Strategy
Three Key Issues:

Firms directional (CORPORATE) strategy Firms portfolio (BUSINESS LEVEL) strategy Firms parenting (FUNCTIONAL LEVEL) strategy

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Initiation of Strategy

New CEO External intervention

Triggering event

Threat of change in ownership Performance gap Strategic inflection point

Stimulus for change in strategy

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Corporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES

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STRATEGIC VARIATIONS - EXPANSION

INTERNAL: Add new product, product line, market, functions, redefine/ reposition of product market. EXTERNAL : Take over, acquisition, merger. RELATED : Synergic diversification. UNRELATED: Non synergic diversification. HORIZONTAL: Supplementary/ Complementary Expansion. VERTICAL: Integration. ACTIVE: R & D, Entrepreneurial development. PASSIVE: Imitation, adoption & adaptation.
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IGOR ANSOFFS BUSINESS GROWTH MODEL

New products /New Markets NEW CUSTOMERS FOR EXISTING LINES OF PRODUCTS MARKET DEVELOPMENT Related Businesses Unrelated Businesses

MARKETS / CUSTOMERS

NEW

EXISTING PRODUCTS IN EXISTING MARKETS

EXISTING Increase Market Share SALES MGMT.

NEW PRODUCTS FOR EXISTING CUSTOMERS NEW PRODUCT DEVELOPMENT, UPGRADES NEW
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Existing Share of Business EXISTING

PRODUCTS * Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA

Products

SPIN OUT
Creating New Business

MANAGING PROJECT
As an external Ventures

INTERNAL VENTURE STRATEGY

Managing new products/ services, development projects as in company Ventures

ALLIANCE
Joint Ventures Venture Acquisition, Partnering

EXTERNAL INVESTMENTS
In
Acquisition of Product, Market, Technology, or Management control

EXTERNAL VENTURES STRATEGY

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EXTERNAL GROWTH STRATEGIES

TAKE OVER, AQUISION & MERGER

BUYING FIRM SELLING FIRM

Acquire Controlling interest} Acquire Assets and liabilities} of selling Firm} Acquire & merge of Assets } liabilities of both the firms.}

TAKE OVER
ACQUISION MERGER
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WHY THE FIRM PURSURE EXTERNAL EXPANSION

To increase the firms stock.. To increase the growth rate of the firm. To make good investments. To improve the firms earnings & stability. To balance or fill out the product line. To diversified the product line in mature state. To reduce the competition. To acquire the needed resources. For Tax purpose. To increase the efficiency and profitability. To diversify the owners holding. To deal with top management problems.
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CRITICAL ISSUES RELATED TO M & A

STRATEGIC ISSUES: It relates to the commonality of strategic interest. Strength of one firm may be weakness of the other firm and vice versa. The firms can create Synergy and complementing business situation. FINANCIAL ISSUES: These are related to (a) Valuation of selling firms based on assets, market standing, share prices, earning potential etc. (b) Sources of financing for merger. MANAGERIAL ISSUES: It relates to professional compatibility and acceptance of managerial system of selling company. LEGAL ISSUES: It is related to various issues of legal provisions such as Chapter V of the Companies Act, the MRTP Act, and section 72A (I) of the Income Tax Act OR Anti Trust Act, Shermans Act. CULTURAL ISSUES: It relates to the cultural compatibility of the organization, society, market etc. LABOUR ISSUES: It relates to continuation of old staff and subsequent relations. SOCIETAL ISSUES: It relates to the benefits of society and Social compatibility. OTHER ISSUES: It relates to Political, Economic, Environmental factors.
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REASONS FOR FAILUR OF EXTERNAL GROWTH

Paying too much for the acquired firm. Assuming that a growing market or product will be out standing in market. Leaping into merger without carefully studying the consequences. Diversifying in to areas in which the firm had too little knowledge. Buying too large a firm and thus incurring an excessively large debt. Trying to merge disparate corporate cultures. Counting on key personnel staying after the merger.
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DERIVED BUSINESS STRATEGIES

OFFENSIVE

DEFFENSIVE

CO-OPERATIVE

FRONTAL ASSAULT FLANKING MANEUVER BYPASS ATTACK ENCIRCLEMENT GUERRILLA WARFARE

RAISE STRUCTURAL BARRIER INCREASE EXPECTED RETALIATION LOWER INDUCEMENT FOR ATTACK

SYNDICATING (COLLUSION) STRATEGIC ALLIANCES MUTUAL CONSORTIA JOINT VENTURE LICENSING ARRANGEMENT VALUE CHAIN PARTNERSHIP

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CO-OPERATIVE STRATEGIES
COLLUSION (SYNDICATING):
It is an active cooperation of firm for their individual and collective advantages within an industry to reduce out-put and raise price in order to the normal economic law of supply & Demand. Collusion may be

Explicit, in which firms co operate through direct communication and negotiation, or Tacit in which firms cooperate indirectly through an informal system of signals. Explicit is illegal under MRTP/ Anti trust Acts.

It can be successful if:

(1) (2) (3) (4) (5) (6)

There are small number of identifiable competitors. Cost are similar among firms. One firm tends to act as price leader or market leader. There is common industrial culture that accepts the cooperation. Sales are characterized by high frequency of small orders. There are high entry barriers to new competitors.
(Exp: Economic Scale of operation, Switching cost, Capital, Capacity, Regulations, market
accessibility, stage in learning curve, Brand loyalties etc ) 53

MUTUAL CONSORTIA Complemented Grouping:

It is a partnership of similar companies in similar industries who pool their competency & resources to gain benefits that are too expensive to develop/ deploy alone, such as access to advance technology or capturing the market. It is fairly weak and fragile alliances. There is very little interaction or communication among the partners.

LICENSING ARRANGEMENT:
It is an agreement in which the licensing firm (licensor) grants rights to another firm( licensee) in another country or market to produce and/or sell a product or services. The licensee pays compensation (Royalties, profit sharing, or lump sum payment) to the licensing firm in return for technical expertise. It is useful strategy if the trademark or brand name is well known. It is also useful when there is Entry barrier for a MNC.
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STRATEGIC ALLIANCE (Partnering):

It is a partnership of two or more corporations or business units to achieve strategically significant objectives which can be mutually beneficial. Some alliance are short term till the product is established, while the others are longer lasting, resulting in merger. The reasons for alliance are:
(a) (b) (c) (d) (e) (f) (g) (h)

(i)
(j) (k)

To obtain technological, management and/or manufacturing capabilities. To enter into specific markets. To reduce financial risk. To reduce political and economic risk. To achieve or ensure competitive advantages in new businesses or markets It plays vital role in todays market condition and environment to solve some complicated issues. It provides vital role in providing the firms synergic strength. It helps to develop product, process, market & share the investment outlay jointly. It facilitates the development of unique technological capabilities to meet the challenges of technological revolution. It create a compulsion for alliance to enter in the local market through JV. Building brand image in local market is mostly possible through alliance.

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SPECIFIC ALLIANCE

Production Alliance: Two or more companies share the common manufacturing facilities, existing or new facilities. Marketing Alliance: Two or more companies share marketing services expertise and facilities. Financial Alliance: Companies joint together in order to reduce financial risks associated with the activities & share the profit in proportion to financial contribution. Research & Development Alliances: Fast changing technology, high cost of R & D and need of being ahead of changes, force companies to form alliance in R & D area. Human Resources Alliance: Alliance for outsourcing
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BREAK UP OF ALLIANCE:

Incompatibility between/among partners in management style, financial position, culture, business interest. Access to information. Distribution of Income. Change in business environment. Acquiring the strength of partner: The companies over a period of alliance, acquire the strengths of the partner and starts new operations in competitions.
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STRATEGIC JOINT VENTURE

Joint ventures (JV) are partnership in which two or more firms carry out a specific project or business in a selected area of industry in a form of new venture. Ownership of the original firms remains unchanged. Actually, corporate partnership are formed with specific and time bound objectives which, once achieved, leaves little reasons for the alliance to continue. Joint venture can be temporary or it can be long term. JV that last longer do so because their objectives have been redesigned. Every JV: 1. Has a scheduled life cycle, which will end sooner or later (5 to 10 years) 2. Has to be dissolved when it has outlived its life cycle. 3. Change in environment forces joint venture to be redesigned regularly 4. Translations seek to absorb their partners competencies. 5. It is a contractual obligation on fragile platform.

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Strategic reasons for Formation of JV

1. 2. 3.

4. 5. 6.

7.

Foreign firms are allowed to operate only if they enter into a JV with local partner. Size of the project may be very large and one company accomplish it. Some projects require multidimensional technology that no one firm possesses. Firm with different, but compatible technology may join together. One firm with technology competence and another with managerial competence join together. A foreign firm with technology competence joins with a domestic firm with marketing competence. While setting up of an organization requires surmounting hurdles such as import quota, tariffs, nationalistic political interest and cultural road block, Governments support for the JV. JV are undertaken for a variety of reasons like political, economic or technological
(A) SPIDER WEB (B) GO-TOGATHER & SPLIT (C) SUCCESSIVE INTEGRATION
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TYPES OF JV:

Building Competitive Advantage Through Business Level Strategy

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Corporate Value Chain

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Porters Generic Competitive Strategies

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What is a Business level strategy

Business level strategies are firm-specific business model that will allow a company to gain a competitive advantage over its rivals in a market or industry. It aims at improving the effectiveness of a companys operations and thus its ability to attend superior efficiency, quality, innovation and customer responsiveness . Its ability to improve companys operations helps in achieving cost leadership or helps the company in differentiating its product from the rival company.
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Distinctive Competencies
They are firm specific strengths that allow a company to differentiate its products and/or achieve substantially lower costs than its rivals and thus gain a competitive advantage. E.g. Toyota They arise from two sources: 1) Resources 2) Capabilities
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Build
RESOURCES Differentiation

DISTINCTIVE COMPETENCIES

BUSINESS STRATEGIES Superior: Efficiency Quality Innovation Customer responsiveness

Low cost Build

Value creation

profitability

CAPABILITIES

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Product/Market/Distinctive-Competency Choices and Generic Competitive Strategies

Cost Leadership
Product Differentiation Market Segmentation
Distinctive Competency

Differentiation
High (Principally by Uniqueness) High (Many Market Segments) Research & Development, Sales & Marketing

Focus
Low to High (Price or Uniqueness) Low (One or a few Segments)
Any kind of Distinctive Competency
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Low (Principally by Price) Low (Mass Market)

Manufacturing and Materials Management

Cost Leadership

It is based on the intent to outperform competitors by doing every thing to establish a cost structure that allows it to produce or provide goods or services at a lower unit cost. Cost leader chooses a low to moderate level of product differentiation relative to its competitors. Aims for a differentiation not markedly inferior to that of the differentiator but a level obtainable at a low cost. Frequently ignores the many different market segments in industry to appeal the average customers.
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Advantages and Disadvantages

Advantages

Disadvantages

Protected from industry competitors Less affected by competitors price change Requires a big market share so they purchases in relatively large quantities Barrier to entry.

Cost leadership approach lurk in competitors ability to find ways to lower their cost structure Ability to imitate cost leaders methods easily The single minded desire to reduce costs might drastically affect the demand
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Implications

To pursue a full blown cost-leadership, strategic managers need to devote enormous efforts to incorporate all the latest information, materials, management, and manufacturing technology into their operations to find new ways to reduce costs. A differentiator cannot let a cost leader get too great a cost advantage because the leader might then be able to use its high profits to invest more in product differentiation and beat leaders. Must respond to the strategic moves of its differential competitors and increase the quality and features of its products if it is to prosper in the long run
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Differentiation Strategy

The objective of the differentiation strategy is to achieve a competitive advantage by creating a product that consumers perceive as different or distinct in some important way. Product differentiation can be achieved in three ways

Quality Innovation Responsiveness to customers

Generally, a differentiator chooses to segment its market into many segments and niches A differentiated company concentrates on the organizational functions that provide the source of its differentiation advantage. 70

Advantages and Disadvantages

Advantages

Disadvantages

Differentiation safeguards a company against competitors to the degree that customers develop brand loyalty for its product Suppliers are rarely a problem as companys strategy is geared more toward the price it can charge than toward costs Distinct product solves the problem of strong buyers The threat of substitutes depends on the ability of the competitors product.

Strategic managers long term ability to maintain a products perceived distinctness in customers eyes. The ease with which competitors imitate the differentiators product

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Focus Strategies

Focus Strategies position a company to compete for customers in a particular market segment, which can be defined geographically, by type of customers, or by region or even by locality.

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Focus Strategies

Focused Cost Leadership Strategy : If a company uses a focused low cost approach, it competes against the cost leader in the market segment in which it has no cost disadvantage. Focused Differentiation Strategy : If a company uses a focused differentiation approach, then all the means of differentiation that are open to the differentiator are available to the focused company.
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Advantages

A focused companys competitive advantage stem from the source of its distinctive competency: efficiency, quality, innovation, or responsiveness to customers. The company is protected from rivals to the extent that it can provide a product or service they cannot. This ability also gives the focuser power over its buyers because they cannot get the same things from anyone else.

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Disadvantages

Powerful suppliers The focusers niche can suddenly disappear because of technological change or change in customers tastes. The focuser is vulnerable and has to defend its niche constantly.

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Competitive positioning and business level strategy

Strategic group Analysis

Investment Analysis Game Theory

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Strategic group Analysis

Strategic group analysis helps a company identify the strategies that its industry rivals are pursuing. It allows managers to uncover the most important basis of competition in an industry and identify products and market segments where they can compete most successfully for customers. Such analysis also helps to reveal what competencies are likely to be most valuable in the future so that companies can make the right investment decision.
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Investment Analysis

An Investment Strategy sets the amount and type of resources human, financial and functional that must be invested to maximize a companys profitability over time. Two factors are crucial in choosing an investment strategy:

The strength of a companys position in an industry relative to its competitors. The stage of the industrys life cycle in which the company is competing.
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Game Theory

Game such as chess, player move in turn, and one player can select a strategy to pursue after considering its rivals choice of strategies or the players act at the same time, in ignorance of their rivals current action.

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Business Level Strategies Help To Improve

1.Efficiency 2.Quality 3.Innovation

4.Customer

responsiveness

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Industry Force

Generic Strategies Cost Leadership

Ability to cut price in retaliation deters potential entrants.

Differentiation
Customer loyalty can discourage potential entrants.

Focus
Focusing develops core competencies that can act as an entry barrier. Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

ntry arriers

uyer ower

Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives.

Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives.

upplier ower

Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

hreat of ubstitut s

Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes.

Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes.

Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes.

ivalry

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiation-focused customer needs.

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals cannot meet differentiation-focused customer needs.

Better able to compete on price.Brand loyalty to keep customers from rivals.Rivals 81 cannot meet differentiationfocused customer needs.

RETRENCHMENT STRATEGY
Common Retrenchment Strategies:

Turnaround, restructuring, Divesting, Bankruptcy, Liquidation

WHY FIRM GO FOR RETRENCHMENT:

Prevalence of poor economic conditions. Competitive pressure may also cause firms to curtail their operations. The comp. is not doing well or perceive itself as doing poorly. The comp. has not met its objectives and there is pressure from shareholders, customers, or others to improve performance. The external environment poses threats and internal strengths are insufficient to face the threats. Better opportunities in the environments are perceived else where were firms strength can be utilized. Inability to implement latest technology cause by tech. revolution.
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International Strategy

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International Strategy Opportunities and Outcomes

Identify Internatiodgd gnal Opportunities Explore Resources and Capabilities Use Core Competence Strategic Competitiveness Management Outcomes Problems and Risk

International
Strategies International Business-Level Strategy Multidomestic Strategy Global Strategy

Modes of Entry
Exporting Exporting Strategic Alliances Acquisition

Increased Market Size Return on Investment Economies of Scale and Learning

Higher Performance Returns

Location Advantage

Transnational Strategy

Establishment of New Subsidiary

Management Problems and Risk

Innovation

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International Strategy Lifecycle

Selling Products or Services Outside a Firms Domestic Market

Product Demand Develops and Firm Exports Products Foreign Competition Begins Production

Firm Introduces Innovation in Domestic Market

Production Becomes Standardized and is Relocated to Low Cost Countries

Firm Begins Production Abroad

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Motivations for International Expansion

Increase Market Share
Domestic market may lack the size to support efficient scale manufacturing facilities Example: Japanese electronics or automobile manufacturers

Return on Investment
Large investment projects may require global markets to justify the capital outlays

Example: Aircraft manufacturers Boeing or Airbus

Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators
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Motivations for International Expansion

Economies of Scale or Learning
Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution - Can spread costs over a larger sales base - Increase profit per unit

Location Advantages
Low cost markets may aid in developing competitive advantage May achieve better access to: - Raw materials - Lower cost labor - Key suppliers - Key customers - Energy - Natural resources

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Porters Determinants of National Advantage

Home Country of Origin Is Crucial to International Success
Related & Supporting Industries Factor Conditions
- Japanese cameras & copiers - Italian shoes & leather

Basic Factors Demand - Land, labor Advanced Factors Conditions - Highly educated workers Home country may - Digital communications support scale efficient Generalized Factors operations by itself - Capital, infrastructure Specialized Factors Firm Strategy, Structure & - Skilled personnel Rivalry

Intense rivalry fosters industry competition

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Business-Level International Strategies

International Low Cost
Usually located in home country Export to international markets Low value added operations in foreign countries High value added operations in home country

International Differentiation
Countries with advanced or specialized factor conditions most likely to use this strategy Example: Japan, Germany, U.S.
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Business-Level International Strategies

International Focus Strategies
Technologically advanced firms follow focused low cost strategy Focused differentiation firms compete on the basis of image & design Third group competes on low price by imitating

International Integrated Low Cost/Differentiation

Can be most effective in dealing with diverse markets Often relies upon flexible manufacturing, total quality management or rapid communication networks
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Corporate-Level International Strategies

Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies

Some Corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office and coordinate resource sharing across units

Three Corporate Strategies

Multi-Domestic Strategy
Global Strategy Transnational Strategy
91

Corporate-Level International Strategies

Multi-Domestic Strategy
Strategy and operating decisions are decentralized to strategic business units (SBU) in each country Products and services are tailored to local markets

Business units in each country are independent of each other

Assumes markets differ by country or regions Focus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in Europe

92

Corporate-Level International Strategies

Global Strategy
Products are standardized across national markets Decisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependent Emphasizes economies of scale

Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)
93

Corporate-Level International Strategies

Transnational Strategy
Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantage
94

International Corporate Strategy

When is each strategy appropriate?

High

Need for Global Integration MultiDomestic

Low
Low High
95

Need for Local Market Responsiveness

International Corporate Strategy

When is each strategy appropriate?
High

Global Strategy Need for Global Integration

Transnational

MultiDomestic
Low
Low High
96

Need for Local Market Responsiveness

Choice of International Entry Mode

Exporting
Common way to enter new international markets No need to establish operations in other countries Establish distribution channels through contractual relationships

May have high transportation costs

May encounter high import tariffs May have less control on marketing and distribution Difficult to customize products
97

Choice of International Entry Mode

Licensing
Firm authorizes another firm to manufacture and sell its products Licensing firm is paid a royalty on each unit produced and sold Licensee takes risks in manufacturing investments Least risky way to enter a foreign market Licensing firm loses control over product quality and distribution Relatively low profit potential A significant risk is that licensor learns technology and competes when license expires

98

Choice of International Entry Mode

Strategic Alliances
Enable firms to shares risks and resources to expand into international ventures
Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms or politics May experience difficulties in merging disparate cultures

May not understand the strategic intent of partners or experience divergent goals 99

Choice of International Entry Mode

Acquisitions
Enable firms to make most rapid international expansion
Can be very costly

Legal and regulatory requirements may present barriers to foreign ownership

Usually require complex and costly negotiations Potentially disparate corporate cultures
100

Choice of International Entry Mode

New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives Achieves greatest degree of control Potentially most profitable, if successful Maintain control over technology, marketing and distribution May need to acquire expertise and knowledge that is relevant to host country
Could require hiring host country nationals or consultants at high cost
101

Strategic Competitiveness Outcomes

International diversification facilitates innovation in the firm Provides larger market to gain more and faster returns form investments in innovation

May generate resources necessary to sustain a largescale R&D program

Generally related to above-average returns, assuming effective implementation and management of international operations

International diversification provides greater economies of scope and learning

102

Major Risks of International Diversification

Political Risk
Rebel fighting in Chechnya (Russia) and Liberia (Africa) Continual warfare among Middle Eastern nations

Potential renationalization of privatized enterprises in Russia

Failure of European Community in quest for economic superpower status because of intercountry disagreements

103

Major Risks of International Diversification

Economic Risk
Mexicos effect on world trade with low wages and high quality but strong currency risks Chinas difficulty in enforcing intellectual property rights on CDs, software, etc.

Germanys struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in social programs
Chinas trade policies. $44 billion trade surplus with United States in 1977. Chinas overall trade surplus 104 increased twentyfold in first half of 1997.

Limits To International Expansion

Management Problems
Cost of Coordination across diverse geographical business units

Institutional and cultural barriers

Understanding strategic intent of competitors The overall complexity of competition

105

PORTFOLIO ANALYSIS

106

Stages of the Industry Life Cycle

107

PRODUCT LIFE CYCLE

Most product sales observed over long periods can be portrayed as bell shaped curves Product life cycle curves which can be typically divided into four stages: Introduction, Growth, Maturity and Decline. Product Life Cycle asserts four things. 1. Products have limited life. 2. Product Sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller. 3. Profits rise and fall through different stages of the life cycle. 4. Products require different marketing, financial, manufacturing, purchasing and H.R. strategies in each life cycle stage. Growth-Slump-Maturity pattern (small kitchen appliances) Cycle Recycle Pattern Scalloped Pattern (succession of PLCs; eg: Nylon)
108

INTRODUCTION - STRATEGIES
Sales growth tends to be slow - Delays in production capacity expansion /technical problems; Distribution/retail chains being put up; sales expensive as conversion rates are lower (innovators).

Promotion at the highest ratio to sales inform customers, induce trial and secure distribution in retail outlets.
Prices tend to be high as costs are higher. Hi
SLOW SKIMMING SLOW PENETRATION RAPID SKIMMING

Lo

RAPID PENETRATION

Hi
109

PROMOTION

PLC - GROWTH STAGE

Introduction is followed by a stage marked by rapid climb in sales. Companies starts to eye for market share. Growth is a period of rapid market acceptance & substantial profit improvement. Innovators, early adaptors like the product and continue to buy the product while middle majority starts trying. New competition as sales and profits are growing. The stage where we see entry of competition in large numbers. Prices remain where they are or fall slightly to allow better penetration or for entry into other segments. Time noted for the introduction of variants/ brand extensions. Companies maintain promotion at same or higher level. Profits increase even with higher promotion costs as it gets spread over higher sales volume.
110

PLC - GROWTH STAGE

MARKETING STRATEGIES Firm improves product quality and adds new features and models. Enters new market segments. Enters new distribution channel. Advertising focus shifts from awareness / knowledge to Interest/desire/conviction. Prices should be reduced (or low priced variants launched) at the right time to attract the next level of price sensitive customers. Faces tradeoff between high market share to high current profit. Firm that pursues market expansion strategy will improve its competitive position.
111

PLC - MATURITY STAGE

Many products which we see around us are in the maturity stage of PLC. A stage characterized by the slow down in the growth rate. Most of practical Marketing management deals with a mature product. Hence the most important phase in PLC. Three Phases 1. Growth Maturity: Sales growth starts to fall due to distribution saturation. Growth predominantly due to trial by laggards. 2. Stable Maturity: Most potential customers have tried the product. Future sales governed by population growth and replacement demand. 3. Decaying Maturity: Absolute level of sales decline. Slow down in sales growth causes over-capacity ----Intensified competition ----- price wars ---- profit Erosion---weak exit. 112

MATURITY STAGE STRATEGIES

R&D spends are increased to find better versions. Increased advertising spends. More Consumer / Dealer cuts. Three types of interventions are taken up by Marketers. 1. Market Modification: Company should not try to conserve but should try & expand market for its Brand. Sales vol. = No. of users X usage rate. Try expand the no. of Brand Users by: Convert non users: Attempts to convert non coffee drinkers to try coffee. Enter new market segments: Johnson & Johnson baby shampoo for adults, Cerelac adapted for the senile. Win competitors customers: Pepsi/Coke, NIIT/Apple.
113

MATURITY STAGE STRATEGIES

Volume can also be increased by focusing on the Current Users convincing them to use more. More frequent use: Biscuits an all time snack, Coke instead of coffee/tea, clinic shampoo, variety of SKU, vending machines. More usage per Occasion: Shampoo giving better results in two rinsing, more SKUs. New more varied uses: Recipe route tried out by microwave oven manufacturers, Sachets by shampoo manufacturers for travelers, Arm & Hammer Baking soda as a refrigerator deodorant. 2. PRODUCT MODIFICATION Stimulate sales by modifying the products characteristics by improvements in quality, feature and style.
114

STRATEGIES FOR MATURE STAGE

2. PRODUCT MODIFICATION Quality Improvement: Functional performance improved- for cars, TV, white goods - New Improved eg: Santro Xing, Indica V2. Plus launch - from FMCG manufacturers --------- stronger, bigger, better, Lifebuoy Plus. Aimed at triggering Brand switching Style Improvement: Aimed at increasing aesthetic appeal. Periodic intro of color variants by auto manufacturers. Consumer/packaged food bringing packaging /color variants. Advantages: Unique identity / can secure loyal customers. Major disadvantage arises from the fact that it is difficult to judge customer preferences --- risk of losing those who liked earlier version
115

STRATEGIES FOR MATURE STAGE (contd.)

Advantages of feature improvements Build progressive and leadership image for co. (Maruti) New features can be made optional (adapted or dropped easily). Helps to win loyalty of some segments. Cost effective publicity. Can generate enthusiasm for sales force and dealers. Main disadvantage is that many of these can be easily imitated. 3. Marketing Mix Modifications: Product Manager should also try to stimulate sales by modifying Mktg. Mix. Price: Decision whether a price cut will attract new customers. Trying price specials, early bird discounts, easier credit terms to retain loyal customers..
116

MATURITY STAGE STRATEGIES

3. Marketing Mix Modifications: Advertising: Change message- copy, media- vehicle mix, timing/frequency, to target new audience. Build new brand identity / image. Direct comparison Ads about competition. Sales Promotion: Step up trade discount Price offs, Rebates, warranties, festival offers, gifts etc. Personal selling: should the quality of sales people or their area of specialization need to be changed. Questions on territory revisions; incentive plans; planning of sales call etc. Services: can the company speed up delivery. Extending technical services. Disadvantages: can be easily copied. Mass distribution and penetration efforts may not help can lead to profit erosion. 117

STRATEGIES FOR DECLINE STAGE

Sales of most products/brands eventually decline . 1. Technological advancements in the product category. 2. Consumer shifts in taste & perception. 3. Increased domestic & foreign competition-----price cutting/ over capacity/ profit erosion.
Sales may plunge to zero or gradually fall for a long period. As sales decline, profits fall. Some of the weaker firms withdraw. Those remaining drop smaller market segments & marginal trade channels to conserve profits. They may cut their promotion budgets and may reduce prices further. Unless strong reasons for retention exist, carrying a weak product is very costly to the firm. It can delay aggressive search for alternatives/replacement.
118

STRATEGIES FOR DECLINE STAGE

MARKETING STRATEGIES: 1. Increase firms investment (Dominate the market or to strengthen its competitive position) 2. Hold investment level until uncertainties about the industry are resolved. 3. Decreasing investment selectively. (Unprofitable target groups/ markets/ products will have to be identified and instead look for strong niches.) 4. Harvesting: milking to recover cash quickly (Brands with high loyalty can continue longer without any investments). 5. Divest the business quickly by disposing off its assets as advantageously as possible. Drop Decision:
Sell/transfer to someone Should drop slowly or fast. Inventory/service level to be maintained.
119

P.L.C WEAKNESSES

No Uniform Shape: An S shaped curve describes only shape of PLC while most of them vary or are unique. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Difficult to Decide the Stages: A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development.
120

P.L.C WEAKNESSES

Unclear Implications: Growth phase may or may not be associated with high profit margin. Rapid growth can be associated with low profits and decline can be very profitable.

Product Oriented: Fails to understand the changes in the requirement of customers / strategies of competitors, attractiveness of new market to competitors/ Emergence of technologies etc. Technologies, needs/ demands, product categories have different driving forces.
121

P.L.C WEAKNESSES

No Uniform Shape: An s shaped curve describes only shape of PLC while most of them vary or are unique. Unpredictable Turning Points: While most products do peak and then fall there is no specific turning point. Difficult to Decide the Stages: A dormant sales (flat) pattern may denote the product has reached maturity while it may be just that the product has touched a plateau before another growth period. Tendency to drop a product due to such readings can turn out to be fatal due to the risks involved in new product development Unclear Implications: Growth phase may or may not be associated with high profit margin. Say rapid growth can be associated with low profits and decline can be very profitable. Product Oriented: Fails to understand the changing requirement of customers / strategies of competitors, attractiveness of new market to competitor-ors / Emergence of technologies etc. Technologies, needs/ demands, product categories have different driving forces.
122

BCG Portfolio Matrix

MARKET SHARE DOMINANCE

HIGH
MARKET GROWTH RATE

LOW

High growth Market leaders Require cash Large profits

High growth Low market share Need cash Poor profit margins

HIGH LOW

$
Low growth High market share High cash flow Low growth Low market share Minimal cash flow
123

BCG Matrix
Relative Market Share Position
High 1.0 High Medium Low

Industry Sales Growth Rate

Stars IV
Med

Question Marks III

Cash Cows I
Low

Dogs II

124

BCG Matrix

125

BCG Portfolio Matrix Example

MARKET SHARE DOMINANCE
HIGH LOW Integrated phone/Palm devices

MARKET GROWTH RATE

HIGH

Sub-Notebooks and Hand-Held Computer

STAR
Laptop and Personal Computers CASH COW

PROBLEM CHILD
Mainframe Computer

LOW

DOG
126

Boston Consulting Group (BCG) Matrix

When a firms divisions compete in different industries, a separate strategy often must be developed for each business. To enhance and formulate strategies. To manage its portfolio of businesses Focuses on relative market share position and the industry growth rate.
127

BCG Matrix

Pie Chart corresponds to corporate revenue generated by that business unit. The pie slice indicates the proportion of divisions profit. Divisions located Quadrant I is called Cash Cows, Quadrant II is called Dogs. Quadrant III is called Question Marks, Quadrant IV is called Stars,
128

Cash Cows

High relative market share but compete in a low-growth industry

Generate cash in excess of their needs Milked i.e. cash for other purposes

Manages to maintain strong position as long as possible

Product development Concentric diversification Retrenchment or divestiture if the division becomes weak
129

Dogs

Low relative market share and compete in a slow- or no-growth industry Weak internal and external position

Liquidation Divestiture Retrenchment

130

Question Marks

Low relative market sharecompete in a high growth industry

Cash needs are high Cash generation is low

Decision: strengthen by pursuing an intensive strategy, e.g. to sell them.

131

Stars

High relative market share and a high industry growth rate Represent the organizations best longrun opportunities for growth and profitability. Substantial investment to maintain or strengthen their dominant position.

Integration strategies Intensive strategies Joint ventures

132

BCG Matrix & Benefit

Setting the path for growth Knowing dead investments Draws attention to the cash flow, Investment characteristics Needs of an organizations various divisions. To achieve a portfolio of divisions that are Stars.
133

BCG Matrix Limitations

Viewing every business as a star, cash cow, dog, or question mark is overly simplistic. Middle of the BCG matrix is not easily classified. The BCG matrix does not reflect whether or not various divisions or their industries are growing over time. Other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.
134

G.E Strategic Planning Model Business Strength Strong Average Weak High

Industry Attractiveness

Medium

Low

Business Strength Index * Market Share * Price Competitiveness * Product Quality * Customer Knowledge * Sales Force and Effectiveness * Geographic Advantage * Others

Industry Attractiveness Index * Market size * Market Growth * Industry Profit Margin * Amount of Competition * Seasonality * Cost Structure * Etc.

135

Strategies for Resource Allocation

Build
Provide financial resources if SBU (Problem Child) has potential to be a Star.

Hold

Preserve market share if SBU is a successful Cash Cow. Use cash flow for other SBUs.

Harvest

Increase short-term cash return. Appropriate for all SBUs except Stars.

Divest

Get rid of SBUs with low shares in low-growth markets.

136

Parenting-Fit Matrix
Low
Heartland Ballast Edge of Heartland

Alien Territory High Low FIT between parenting opportunities and parenting characteristics Value Trap High

137

McKinseys 7 S Model
Strategy

Structure

Super Ordinate GoalsShared Values

Systems

Style

Skills

Staff

138

Implementation of a strategy

139

Strategy Implementation

Sum total of the activities and choices required for the execution of a strategic plan. Process by which strategies and policies are put into action through programs, budgets, and procedures. The toughest phase in Strategy Management
140

Strategy Implementation
More time than planned Unanticipated problems Activities ineffectively coordinated Crises deferred attention away Employees w/o capabilities Inadequate employee training Uncontrollable external factors Inadequate leadership Poorly defined tasks Inadequate information systems

Problems in Implementing Strategic plans

141

IS STRATEGY FUNCTIONAL?

DESIGN OF OBJECTIVES & COMMUNICATE TO CONCERNED

TASK BREAK DOWN EVALUATION OF OUT COME

TRAINING & DEVELOPMENT OF MANAGERS

STRATEGIC IMPLEMENTATION & CONTROL PROCESS

ORGANISATION DESIGN & DEVELOPMENT

DELEGATION OF TASK & AUTHORITIES & RESPOSIBILITIES

RESOURCES MOBILISATION & ALLOCATION

DESIGN OF SIS /MIS DESIGN OF PERFORMANCE STANDARD

142

The Nature of Strategy Implementation

The greatest strategy will be failed if its implemented badly.

Successful strategy formulation does not guarantee successful strategy implementation. Less than 10% of strategies formulated are successfully implemented!

143

The Nature of Strategy Implementation

Strategy Implementation can have a low success rate

Implementation may fail due to:

Failing to segment markets appropriately Paying too much for a new acquisition Falling behind competition in R&D Not recognizing benefit of computers in managing information

144

The Nature of Strategy Implementation

Successful Strategy Implementation

Market goods & services well Raise needed working capital Produce technologically sound goods Sound information systems

145

Formulation vs. Implementation

Formulation focuses on effectiveness Implementation focuses on efficiency

Formulation is primarily an intellectual process Implementation is primarily an operational process

Formulation requires good intuitive & analytical skills Implementation requires special motivational & leadership skills Formulation requires coordination among a few individuals Implementation requires coordination among many individuals
146

Nature of Strategy Implementation

Strategy Implementation

Varies among different types & sizes of organizations

147

Nature of Strategy Implementation

Implementation Activities

Altering sales territories Adding new departments Hiring new employees Cost-control procedures Modifying advertising strategies Building new facilities

148

Nature of Strategy Implementation

Management Perspectives

Shift in responsibility
Strategists Division or Functional Managers

149

Management Issues
Annual Objectives

Management Issues

Resources Organizational structure Restructuring

150

Management Issues (contd)

Resistance to Change

Management Issues

Production/Operations

151

Management Issues
Purpose of Annual Objectives -Basis for resource allocation Mechanism for management (e.g. IT management) evaluation Metric for gauging progress on long-term objectives

Establish priorities (organizational, division, & departmental)

152

Management Issues
-- Central management activity that allows for the execution of strategy Resource Allocation
enables resources to be allocated according to priorities established by annual objectives.

153

Management Issues
4 Types of Resources
1. Financial resources 2. Physical resources 3. Human resources 4. Technological resources

154

Management Issues
Matching Structure w/ Strategy -- Changes in strategy = Changes in structure
Structure dictates how objectives & policies will be established and how resources will be allocated; e.g. is structure based on location or based on the product
155

Structure should be designed to facilitate the strategic pursuit of a firm

New strategy Is formulated

New administrative problems emerge

Organizational performance declines

Organizational performance improves

New organizational structure is established

156

Management Issues
Restructuring -- Reducing the size of the firm # of employees, divisions and/or units, # of hierarchical levels; e.g. The Internet is
ushering in a new wave of business transformations

157

Management Issues
Reengineering In reengineering, a firm uses information technology to break down functional barriers and create a work system based on business processes Reconfiguring or redesigning work, jobs, & processes to improve cost, quality (alteration of Scott Mortons value chain) Think of an example.
158

Management Issues
Resistance to Change -- Single greatest threat to successful strategy implementation Raises anxiety; fear concerning: economic loss, Inconvenience or Uncertainty
Force Change Strategy

Educative Change Strategy

Rational or Self-Interest Change Strategy
159

Management Issues
Production/Operations Concerns

Production processes typically constitute more than 70% of firms total assets
Decisions concern e.g. :

Plant size
Quality control Technological innovation

160

Marketing Issues
Marketing variables affect success/failure of strategy implementation

1. Market segmentation
2. Product positioning

161

Marketing Issues
Market Segmentation: Subdividing of a
market into distinct subsets of customers according to needs and buying habits

Market segmentation variables:

Product Place Promotion Price

162

Marketing Mix Component Factors

Product Quality Features Style Brand name Place Distribution channels Promotion Advertising Personal selling Sales promotion Publicity Price Level

Distribution coverage
Outlet location Sales territories

Discounts & allowances

Payment terms

Packaging
Product line Warranty Service level

Inventory levels/locations
Transportation carriers

163 163

Marketing Issues
Product Positioning

Schematic representations that reflect how products/services compare to competitors on dimensions most important to success in the industry; I.e. according to customer wants and customer needs

164

Finance/Accounting Issues
Essential for implementation

Acquiring needed capital Developing projected financial statements Preparing financial budgets Evaluating worth of a business

165

Research & Development Issues

New products and improvement of existing products that allow for effective strategy implementation

Use an R&D strategy that ties external opportunities to internal strengths and is linked with objectives.

166

Research & Development Issues

3 Major R&D approaches to implementing strategies
1. 2. 3.

1st firm to market new technological products Innovative imitator of successful products Low-cost producer of similar but less expensive products

167

Management Information Systems (MIS) Issues

Information is the basis for understanding the firm. One of the most important factors differentiating successful from unsuccessful firms MIS used to : Information collection, retrieval, & storage Keeping managers informed Coordination of activities among divisions Allow firm to reduce costs
168

Stages of the Industry Life Cycle

Stage Factor Generic strategies Market growth rate Number of segments Intensity of competition Emphasis on product design Introduction Growth Maturity Decline

Differentiation Differentiation Differentiation Overall cost Overall cost leadership leadership Focus Low Very large Low to Negative moderate Very few Low Very high Some Increasing High Many Few

Very intense Changing Low to moderate Low

169

Stages of the Industry Life Cycle

Stage Factor Introduction Growth Low to moderate Sales and marketing Maturity High Decline Low

Emphasis on Low process design Major functional area(s) of concern Overall objective Research and Development

Production

General management and finance Consolidate, maintain, harvest, or exit

Increase market share awareness

Create consumer demand

Defend market share and extend product life cycles

170

Evaluation and Control

Return on Investment (ROI)

Traditional Financial Measures

Earnings per Share (EPS) Return on Equity (ROE)

171

THANK YOU.

172